lesson 5-6

Question 1

what is an incentive?
and what do low prices incentivise?

Answer 1

they encourage a certain behaviour you would not otherwise do
low prices incentivise consumers to buy

Question 2

what else can a production possibility curve be referred to as?

Answer 2

production possibility frontier

Question 2

what does the production possibility curve illustrate and show?

Answer 2

it illustrates the concept of economic choice and opportunity cost in a simple graph
it shows the maximum output that an economy can currently produce with the resources available at maximum efficiency

Question 2

what is a consumer good?

Answer 2

goods used by consumers

Question 2

what is productive efficiency?

Answer 2

getting the most out of our resources

Question 2

what are the five things production possibility curves can show?

Answer 2

1. choice
2. scarcity
3. opportunity cost
4. efficiency
5. capacity

Question 2

if there is a cross inside the production possibility curve what does it show?

Answer 2

unemployment / inefficiency

Question 2

some reasons for being inside the production possibility curve (inefficient)?

Answer 2

1. lack of workers
2. strikes
3. inefficient
4. poor machines
5. covid/economic shock

Question 3

what is inelastic demand?

Answer 3

we will keep on buying it regardless of price as its a necessity

Question 3

what is an economic incentive?

Answer 3

the potential gain from taking a risk

Question 4

What is allocative efficiency?

Answer 4

When you satisfy both needs and wants

Question 5

What’s a market?

Answer 5

Where buyers and sellers meet up and agree on a price
Buyers buy what they want or need if they can afford it
Sellers sell what they can to make and try to earn profit for their trouble

Question 6

Some uses of money

Answer 6

1. A medium of exchange
2. Unit of account
3. Save

Question 7

Money as a medium of exchange

Answer 7

It allows us to exchange goods even when there’s no double coincidence of wants (I don’t want what you have)

Question 8

Money as a unit of account

Answer 8

It measures a value

Question 9

What makes up a competitive market?

Answer 9

1. Many sellers who went to high prices for high profits
2. Many buyers who want low prices but high quality
3. No buyer or seller dominates

Question 10

What is a planned economy?

Answer 10

Planned-public sector
Things are planned from the centre by the government (government control on all things)

Question 11

What is a market economy?

Answer 11

Where allocation of resources and prices of goods and services are determined by the market forces mainly supply and demand

Question 12

What did Adam smith argue?

Answer 12

The selfish pursuit by every individual could lead to an economy where benefit was maximised as it incentivises producers to produce what we want which is allocative efficiency

Question 13

What did Hayek argue?

Answer 13

He was in favour of the free market and no government intervention as he thought state control would lead to loss of freedom

Question 14

What did Marx argue?

Answer 14

That owners exploited workers which is why revolution was inevitable as he saw a future of collective ownership to benefit everyone

Question 15

What is a free market?

Answer 15

When people can buy and sell goods and services that is not under the control of the government

Question 16

Which type of market is considered by many economists to be the most efficient way of answering the fundamental economic questions?

Answer 16

Free

Question 17

Advantages of a free market

Answer 17

1. Firms must be efficient to survive (low costs)
2. Profit is a great incentive to entrepreneurs to take risks
3. Workers will be motivated by the high wages boosting productivity
4. Demand is signalled to firms by rising prices so firms can react with rising the supply so consumers get what the want which is allocative efficiency

Question 18

Disadvantages of free markets

Answer 18

1. People miss out on essential services which makes it inefficient
2. Lots of waste
3. Unequal distribution of wealth
4. Firms are motivated by profits and don’t care about kick on effects including the environment
5. Rewards if you are already rich

Question 19

What is demand?

Answer 19

The quantity of a product which all the consumers in a market are willing and able to buy at different market prices.
If prices drop demand increases

Question 20

What’s the law of demand?

Answer 20

If price falls then more is demanded

Question 21

Falling prices causes what to happen to demand?

Answer 21

Demand will extend (increase because its lower so people are more inclined to buy it)

Question 22

Rising prices causes what to happen to demand?

Answer 22

Causes demand to contract (decrease/ go back because prices are higher and people aren’t trying to pay those prices)

Question 23

What is supply?

Answer 23

The willingness and availability to sell a product at any given price over some given period of time

Question 24

What happens to supply as prices increase?

Answer 24

It increases (imagine it happens because less people are buying it because they don’t want to pay the price so say supply increases while the demand decreases)

Question 25

What is the public sector financed by?

Answer 25

Taxation

Question 26

Inelastic demand is known as a…

Answer 26

Necessity

Question 27

the four economic resources

Answer 27

1. land
2. labour
3. capital
4. enterprise

Question 27

why is a productive work force good for an economy?

Answer 27

more products are produced, increasing efficiency, leading to increase in profit

Question 28

why are all economic decision makers forced to make choices?

Answer 28

resources are finite

Question 29

The price mechanism allocates scarce resources…

Answer 29

ensuring that low prices attract consumers and high prices put them off

Question 30

in the free market what are firms incentivised to do?

Answer 30

to produce what people want